2/8/2016

Problems and
Prospects for
Modern Business
Enterprises of
Bangladesh
Submitted to:
Dr. Sabnam Jahan
Associate Professor
Department of Management
University of Dhaka.

Submitted by:
Abul Kalam Azad
EMBA
Student code: 3-16-32-063
Course code & Title: EM: 501 Introduction to
Business

Abul Kalam Azad
BANGLADESH POLICE

Table of Contents
Introduction ................................................................................................................................................................. 2
Business Background of Bangladesh ....................................................................................................................... 2
Problems and Prospects for Modern Enterprises ............................................................................................... 4
Poverty and inequality ........................................................................................................................................... 4
Social development ................................................................................................................................................ 4
Political affairs, good governance and human rights ...................................................................................... 4
Security matters ..................................................................................................................................................... 5
Indigenous peoples and Chittagong Hill Tracts .............................................................................................. 5
Climate change and geopolitical challenges ..................................................................................................... 6
Impressive economic growth – and constraints ............................................................................................. 6
Working conditions and labour rights .............................................................................................................. 7
External assistance from development partners ............................................................................................ 7
Conclusion.................................................................................................................................................................... 7

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Problems and Prospects for Modern
Enterprises in Bangladesh
Introduction
Bangladesh, officially the People's Republic of Bangladesh, is a country in South Asia. It is bordered by
India to its west, north and east; Myanmar (Burma) to its southeast; and is separated from Nepal and
Bhutan by the Chicken's Neck corridor. To its south, it faces the Bay of Bengal. Bangladesh is the world's eighth-most populous country, with over 168 million people. It is one of the most densely populated countries, and among countries with a population exceeding 10 million, it is the most densely populated. It forms part of the ethno-linguistic region of Bengal, along with the neighboring
Indian states of West Bengal and Tripura. There is a lot of business opportunity here. In this assignment the problems and prospects for the modern enterprises here in Bangladesh will be described.

Business Background of Bangladesh
Bangladesh is a developing country, with a market-based mixed economy and is listed as one of the
Next Eleven emerging markets. The per capita income of Bangladesh was US$1,190 in 2014, with a
GDP of US$209 billion. In South Asia, Bangladesh has the third-largest economy after those of India and Pakistan, and has the second highest foreign exchange reserves after India. The Bangladeshi diaspora contributed US$15.31 billion in remittances in 2015.
In the early five years of independence, Bangladesh adopted socialist policies which proved to be a critical blunder by the Awami League. The subsequent military regime and BNP and Jatiya Party governments restored free markets and promoted the Bangladeshi private sector. In 1991, finance minister Saifur Rahman launched a range of liberal reforms. The Bangladeshi private sector has since rapidly expanded, with numerous conglomerates now driving the economy. Major industries include textiles, pharmaceuticals, shipbuilding, steel, electronics, energy, construction materials, chemicals, ceramics, food processing, and leather goods. Export-oriented industrialization has increased in recent years, with the country's exports amounting to US$30 billion in FY2014-15. The predominant export earnings of Bangladesh come from its garments sector. The country also has a vibrant social enterprise sector, including the Nobel Peace Prize-winning microfinance institution Grameen Bank and the world's largest nongovernmental development agency BRAC.
The insufficient power supply is a significant obstacle to growth. According to the World Bank, poor governance, corruption and weak public institutions are major challenges for Bangladesh's development. In April 2010, Standard & Poor's awarded Bangladesh a BB- long term credit rating, which is below India and well above Pakistan and Sri Lanka.
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Bangladesh is notable for its fertile land, including the Ganges delta, the Sylhet Division and the
Chittagong Hill Tracts. Agriculture is the single largest producing sector of the economy since it comprises about 18.6% (data released on November, 2010) of the country's GDP and employs around
45% of the total labor force. The performance of this sector has an overwhelming impact on major macroeconomic objectives like employment generation, poverty alleviation, human resources development and food security. A plurality of Bangladeshis earn their living from agriculture. The country ranks among the top producers of rice (4th), fish (5th), jute (2nd), tea (10th) and tropical fruits (5th).

Bangladesh is the 7th largest natural gas producer in Asia, ahead of its neighbor Myanmar. Gas supplies generate 56% of the country's electricity. Major gas fields are located in northeastern (particularly
Sylhet) and southern (including Barisal and Chittagong) regions. Petrobangla is the national energy company. The American multinational Chevron produces 50% of Bangladesh's natural gas. According to geologists, the Bay of Bengal holds large untapped gas reserves in Bangladesh' exclusive economic zone. The country also has substantial reserves of coal, with several coal mines operating in northwestern Bangladesh.
Jute exports continue to be significant, however the global jute trade has reduced considerably since it peaked during World War II. Bangladesh has one of the oldest tea industries in the world. It is also major exporter of fish and seafood.
The Bangladesh textile industry is the largest manufacturing sector, accounting for US$25 billion in exports in 2014. Leather goods manufacturing, particularly in footwear, is the second largest export oriented industrial sector. The pharmaceutical industry in Bangladesh meets 97% of domestic demand and exports to 52 countries. The shipbuilding industry in Bangladesh has seen rapid growth with exports to Europe. The steel industry in Bangladesh is concentrated in the port city of Chittagong.
The ceramics industry in Bangladesh is a prominent player in the international ceramics trade. In 2005,
Bangladesh was the world's 20th largest cement producer. The country's cement industry depends on limestone imports from North East India. Food processing is a major sector of the local economy, with prominent brands like PRAN that are increasingly gaining an international market. The electronics industry in Bangladesh is witnessing rapid growth, with the Walton Group being its dominant player.
Bangladesh also has its own defense industry, including the establishments such as Bangladesh
Ordnance Factories and the Khulna Shipyard.

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Problems and Prospects for Modern Enterprises
Poverty and inequality
Overall poverty levels fell from 57 percent in 1991–92 to 31.5 percent in 2010. The rate of reduction has been faster in the present decade compared with the last decade, lifting out of poverty more than
2.8 million people a year. Bangladesh is, however, still among the poorest countries in the world, ranking 146 out of 187 on the 2011 United Nations Human Development Index. Inequality is growing and many people are not benefiting from social and economic development. About 25 percent (40 million people) are extremely poor and spend almost all of their income on food and still do not meet their minimum nutritional requirements. Women, children and in particularly female headed households and children living without parental care are especially vulnerable. Around 40 percent of children and 30 percent of women are malnourished. Minority ethnic groups also suffer from high levels of extreme poverty, particularly in regions such as the Chittagong Hill Tracts, the Northern
Plains, Mymensingh and Cox’s Bazaar (where there is a large population of Rohingya refugees from
Myanmar). Poverty is monitored by, among others, UNDP, e.g. in connection with the reporting on the Millennium Development Goals

Social development
The country has been recognised globally for its progress towards meeting the Millennium
Development Goals, particularly in the areas of gender equality in education, combating HIV/AIDS, malaria and other diseases, and significantly reducing infant and child mortality rates. However, maternal and neonatal mortality rates remain unacceptably high. Although gender indicators are improving, many women still face extreme social and economic disadvantages. Violence against women and girls is common, affecting one out of every two women. Bangladesh also has one of the highest rates of child marriages and adolescent motherhoods in the world.

Political affairs, good governance and human rights
Bangladesh is a parliamentary democracy and a secular country. Though Bangladesh is in a relatively stable period in terms of politics and security and the Government of Bangladesh has established an ambitious economic and social reform agenda, including stronger international and regional cooperation, the country is still faced with challenges of consolidating democracy and the rule of law.
This is partly due to the confrontational politics practiced by the two main political parties over decades, reflecting longstanding personal enmity between the leaders of Awami League and Bangladesh
Nationalist Party. The expected general election in early 2014 will be the litmus test of whether democratic, secular governance under the rule of law can be further consolidated in Bangladesh. This could have significance for countries in Asia, the Middle East and North Africa, since Bangladesh would

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then strengthen its standing as a successful, secular and civilian democracy in a country with a predominantly Muslim population.
The complex political relationship between the army and the two political parties is another factor which to some extent risks undermining democracy in Bangladesh. The local government system is considered weak and insufficiently mandated and resourced, and effective decentralisation and devolution of decision-making and resource allocation is a slow process. Strengthening of local government is vital for improving public service delivery to the country’s vast population, especially for those living in small towns and rural areas. The bureaucracy is inefficient and highly centralised, making provision of effective services a real challenge.
There have been a number of positive developments which have helped strengthen the democratic governance in the country. These include the generally good conduct of municipal elections and of parliamentary by-elections in 2011 and 2012; the establishment of a National Human Rights
Commission; the strengthening of women’s rights, including the adoption of a new Education Policy introducing secular curriculum elements into madrassas, a new national Women’s Development Policy
(in the face of significant public demonstrations by Islamic conservatives), a National Children’s Policy, the passing of Right to Information legislation and the establishment of an Information Commission.
The Government of Bangladesh has a stated policy of “zero tolerance” against human rights abuses, but major abuses of human rights, including extra judicial killings by law enforcement agents, custodial deaths and torture with impunity, unwarranted arrests, violence against women, discrimination against indigenous peoples in land and access to justice, child labour and disregard for prisoners’ rights etc., persist. The reasons for this are complex, but a main factor is weak and allegedly corrupt judicial systems and law enforcement agencies.

Security matters
The Government of Bangladesh is actively engaged in commendable efforts of managing Islamic radicalisation, both at national and international levels, but the fight against national and global terrorism remains a challenge.

Indigenous peoples and Chittagong Hill Tracts
The Peace Accord for the Chittagong Hill Tracts was signed in 1997, but the implementation has been slow and considered not satisfactory by the indigenous peoples and by national and international observers. The lack of substantial progress in implementing the Chittagong Hill Tracts Peace Accord is leading to an increasing sense of frustration and disillusionment among the indigenous peoples in the region. Even though the situation in the area is reasonably secure, there are tensions and frequent confrontations between indigenous communities and settlers from the plains, mainly caused by

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conflicts over rights and access to land. Violent clashes between political groupings among the indigenous communities also occur.

Climate change and geopolitical challenges
Key emerging challenges include increased vulnerability to natural disasters and climate change adaptation, accompanied by a rapidly growing urban population. Situated in a low lying delta and with a very high population density – 150 million people in an area only 144,000 square kilometres or three and a half times the size of Denmark – Bangladesh is extremely vulnerable to natural disasters including floods, cyclones and tidal surges often with catastrophic consequences. In the coming decades, the global sea level rise is expected to inundate land areas in the Southern part of the country displacing people living on marginal lands along the coast and rivers and in low-lying lands.
Lack of regulation and control of massive water, air and soil pollution in and around Dhaka and other major cities is a growing problem affecting the liveability and public health conditions for millions of people. By 2025 half of the population is expected to be living in urban areas, and Dhaka is one the world’s fastest growing megacities today. Land resources are scarce, and access to and ownership of land are characterised by a high level of inequity, increasing conflicts over land rights as well as widespread land grabbing.

Impressive economic growth – and constraints
Bangladesh has experienced strong economic development over the past decade. Economic growth is progressing at a steady rate of 5–6 percent per year on average since 2004. The twin drivers of the economy are robust remittances mainly from the Middle East and exports with the garment sector contributing two thirds. The impact of the global economic crisis has been relatively limited and prospects of continued growth are relatively good.
Bangladesh’s GDP is about one third of Denmark’s. Although half of the GDP is generated by the service sector, agriculture with its 20 percent share remains the mainstay and employs half of the working population. The economy is gradually shifting from agriculture to manufacturing.
The greatest constraint today lies in energy production, which, although investments have been made, remains insufficient to keep pace with growth in manufacturing. The garment and manu-facturing sectors offer good prospects of generating employment and underpinning economic growth, but they require structural and infrastructure support to do so. It is estimated that the annual economic growth is 2 percentage points lower than the potential due to lack of sufficient energy.
Inflow of foreign direct investments remains small and stable just below USD 1 billion. Improvement of the general business environment, including combating corruption, is required to boost private investment. Widespread corruption in the public and private domain continues to be of great concern.
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In 2011, Bangladesh ranked number 120 out of 183 on Transparency International’s Corruption Index, the justice and police sectors reportedly the worst affected.
Bangladesh has one of the lowest tax revenue collection ratios in the world and there is a great scope for improving public revenue generation through modernising and improving tax collection systems in the country.

Working conditions and labour rights
Industry growth in Bangladesh has been a key factor in reducing poverty, notably by creating employment in the garment sector for women. However, it remains a major concern that at some factories, wages and security are at unacceptable levels. Less than 5 percent of the workers are organised and the existing trade unions are weak and fragmented, especially when compared to the often well organised and resourceful employer’s organisations. Danish trade unions (LO/FTF and 3F) have for some years been actively engaged in promoting trade unions and labour rights.
While regulations are in place on issues such as fire and building safety, compliance is a serious concern.
Government inspectors are understaffed and underequipped. Widespread corruption makes it possible for culprits to escape inspection and sanctions. This only enhances the duty of foreign buyers to strengthen CSR and inspection schemes to compensate for inefficient Government control and impunity. External assistance from development partners
In recent years, the annual aid flows to Bangladesh were approximately USD 1.2 –1.5 billion. The
World Bank, the Asian Development Bank, Japan, the United Kingdom, the USA and the European
Union are major donors in Bangladesh.
Currently, aid accounts for approximately 40–45 percent of the country’s annual development plan, including social and infrastructure development. Aid flows are expected to grow over the next five years with the UK announcing a doubling of its assistance. Besides the traditional multi and bilateral development partners, there are also new large emerging development partners such as China and
India, which are providing assistance mainly in the form of credit lines and infrastructure loans.
Bangladesh is, however, not an aid dependent country in terms of financing with the total aid accounting for less than 2 percent of GDP.

Conclusion
MODERN ENTERPRISES is viewed as a major stimulus to economic growth in developing countries as it brings prosperity to the recipient countries through technological transfer, increasing
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volume of exports, enhancing job opportunities and increasing government revenue. Realizing the importance of MODERN ENTERPRISES, Bangladesh offers one of the most liberal regimes for
MODERN ENTERPRISES in South Asia and these policies are producing results in terms of increased inward investment. Despite, MODERN ENTERPRISES inflow in the SAARC region particularly in
Bangladesh is not satisfactory. Furthermore, the lion’s share of MODERN ENTERPRISES is being repatriated. To attract MODERN ENTERPRISES, Bangladesh has to reinforce its infrastructure facilities, and improve the quality of services. Furthermore, a consistent incentive package should be implemented which may include fiscal measures (such as rationalization of para tariffs, elimination of non-tariff barriers), financial measures (such as reducing interest rates, access to financing), and institutional measures (such as enhancement of competitiveness through capacity building). It is true that MODERN
ENTERPRISES follows domestic investment, and if the level of domestic investment is low, it will not help MODERN ENTERPRISES to rise at the desired level. Thus, to boost foreign investors’ confidence and encourage them to invest in Bangladesh, the domestic investment rate, which is closely related to improvement of the business environment and of economic governance, should be increased. Simply providing incentive packages and liberalization measures will not attract MODERN ENTERPRISES, nor has MODERN ENTERPRISES always proved to have a positive impact on the economic growth of the country. Last but not the least; good governance is crucial to ensuring increased flow of MODERN ENTERPRISES and thereby sustaining pro-poor growth. But policy alone is not sufficient to attract the handsome flow of MODERN ENTERPRISES.
We have to overcome the aforesaid impediments towards the inflow of MODERN ENTERPRISES in
Bangladesh. If it is possible, definitely Bangladesh would be able to attract a lion’s share of MODERN
ENTERPRISES among South Asian regions and thereby achieve its target of higher economic growth and poverty alleviation.

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